The Pound loses its BoE hike bounce before Friday's US payrolls

GBP/USD is on track for a first loss in seven sessions after stalling at 1.3500.
All nine voted to raise, and BoE Governor Bailey said not to expect a sequence.
October payrolls are due Friday, forecast at 65K after September's 29K.

The Bank of England (BoE) raised the UK's Bank Rate to 4% on Thursday, as the market had fully priced, and the Pound's six-session climb has stopped just above 1.3500. GBP/USD reached that level on Wednesday, its highest since mid-September, got there again on Thursday and is trading near 1.3450. It's on track for a first loss in seven sessions.

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All nine members voted to raise, one of them for a half-point, and BoE Governor Bailey said the increase shouldn't be read as the first of a sequence. The BoE projects inflation near 5% by mid-2027, from 3.5% in September. The market now prices a December hike near one in two, from one in three before the vote, and three-quarters of a point more by the end of 2027.

The Dollar has recovered part of Wednesday's drop to a one-month low after the Democrats took both houses of Congress, and jobless claims fell to 189K against a 196K forecast. Unit labour costs fell 0.7% in the third quarter instead of rising 0.6%, and a December Fed hike is priced near 70%, from above 80% on Wednesday. The Bank Rate at 4% now matches the top of the Fed's 3.75%-4.00% range.

On the calendar

October Nonfarm Payrolls (NFP) are due at 13:30 GMT on Friday, forecast at 65K after September's 29K. New York Fed President Williams speaks on Friday at 09:30 GMT and Fed Governor Bowman at 17:15 GMT. October's Consumer Price Index (CPI) follows at 13:30 GMT on Tuesday, November 10, forecast up 0.3% after 0.6%, and all of it feeds the December 8-9 Fed meeting.

BoE Governor Bailey speaks at 17:25 GMT on Monday, BoE Deputy Governor Lombardelli at 12:30 GMT on Tuesday and BoE Chief Economist Pill at 18:30 GMT. Third-quarter Gross Domestic Product (GDP) is due at 07:00 GMT on Thursday, November 12, after 0.5% growth, and feeds the BoE's December meeting.

On the charts

Thursday's bar is inside Wednesday's range, and the pullback from the high has taken back about a quarter of the climb from the October 28 low just above 1.3250. The pair is above both the 50-day Exponential Moving Average (EMA), just above 1.3350, and the 200-day EMA just under 1.3400, with the 50-day still below the 200-day. Daily momentum is overbought and has started to turn lower.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.